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London Forex Report: Dollar Soft on Dovish Slant

London Forex Report: Dollar Soft on Dovish Slant

London Forex Report: The USD traded lower (10y UST yield softened slightly) after the FOMC minutes continued to show many members of the FOMC still doubting the transitory nature of soft inflation while a few members were in favor of deferring further rate hikes pending the data a flow.. Meanwhile, dovish comments from the Fed’s Evans (voter, waiting for stronger wage growth) were somewhat balanced out by somewhat hawkish comments from the Fed’s Williams (non-voter; stating that the economy has exceeded full employment).

NORTH AMERICA FOMC minutes reiterated that policy makers were divided in the last policy decision to keep interest rates on hold in September, citing below target inflation the biggest concern. This is seen as a tad dovish, but markets seem unperturbed by expectations for another rate hike probably by December this year. Fed Funds Implied Probabilities for a December rate hike stood at 77%. Even if the Fed could still probably deliver another rate hike this year, the pace of interest rate increases will remain very measured next year, especially with the potential change in Fed Chair when Yellen’s term expires in February. US MBA mortgage applications for the week ended 6th October extended its decline for the consecutive week, underscoring recent renewed weakness in the housing market. Applications fell 2.1% WoW, dragged by declines in both new purchases and refinancing on the back of higher mortgage rates.

EUROPE The EUR continued to lift as Spanish uncertainty defused (note however the 16th October deadline for the Catalan government) and with the ECB’s Praet sounding sanguine (but slightly cautious towards anaemic inflation). UK RICS house price balance surprised on the upside with the balance of respondents expecting an increase in house prices held steady at 6%. Despite slowly inching back up for the last two months, sentiments remain near a four year low.

ASIA In Japan, indicators surprised on the upside and pointed to pick-up in business spending. Machine tool orders grew at a faster pace of 45.3% YoY in September, thanks to quicker growth from both domestic and foreign orders. Meanwhile, core machine orders also rebounded more than expected with a 4.4% YoY increase in August, snapping two straight months of contraction, driven by a turnaround in orders by the manufacturers while non-manufacturers orders continued to languish for the 5th straight month. PPI quickened to 3.0% YoY in September as expected, extending its 4th straight month of rising trend to a three year high, offering comfort that inflation is picking up in Japan, albeit very gradually. This shall support the case for monetary policy to stay at very accommodative level as sounded by BOJ officials recently.

Technical: 1-3 Day View – Profit taking pull back on the initial test of trend support at 1.3060 extends to squeeze shorts testing 1.3220 resistance a daily close over this level targets 1.3320 next. Failure to sustain break of 1.3230/50 opens a test of 1.30.

1-3 Week View – 1.3263 achieved as this acts as support 1.3836 is the next upside objective only a close back below 1.30 would jeopardise the bullish advance.Retail Sentiment: NeutralTrading Take-away: Neutral

Technical: 1-3 Day View – Near term support is sited at 112.00 as this area attracts bids expect a test of offers over 113.50 a sustained break of 112 opens a move to test 110.85 base break out level..

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnetRetail Sentiment: BearishTrading Take-away: Long

Technical: 1-3 Day View – Breach of 133 supports delays a test of 136.10 as 133 now acts as resistance, expect a retest of 1.32/1.3150 support zone only below 131 concerns the bullish bias opening a move back to 129 base.

1-3 Week View – 136.10 is the principle upside objective as this area caps the current advance expect a retest of 131.50 to set a base for the next leg higher, only a closing breach of 127 concerns the bullish basis.Retail Sentiment: BearishTrading Take-away: Long

Patrick has been trading for the past ten years. After liquidating several accounts in his early days he stopped ‘gambling’ and applied himself as a student of risk. Self taught and more self aware thanks to Mr Market. Patrick applies simple technical strategies based around market price and time structure to identify high probability trade locations.